Russia pauses rate increases as risk of downturn brushed off

Russia’s central bank held back from raising interest rates after a surprise increase last month, a pause that may prove brief after inflation quickened past the target range to the fastest in 10 months.

Bank Rossii kept the refinancing rate at 8.25 percent at a meeting today after a quarter-point increase in September, the central bank in Moscow said in a statement on its website. The decision was forecast by 19 of 22 economists in a Bloomberg survey. The main short-term lending and deposit rates will remain at 5.5 percent and 4.25 percent.

Economists project the central bank will raise borrowing costs again before the end of 2012 after inflation surged to 6.6 percent in September. Policy makers said in today’s statement they don’t see risks of a “significant slowdown” to the economy from monetary tightening, another indication the bank is preparing further action to curtail price growth.

“The central bank decided to take a pause and see how the situation with inflation will develop,” said Vladimir Tikhomirov, chief economist at Otkritie Capital in Moscow. “The risk of an economic slowdown is there, even though the central bank is less concerned with economic growth.”

The ruble appreciated 0.4 percent to 30.9427 per dollar as of 5:53 p.m. in Moscow, heading for the strongest close since Sept. 17. The Micex Index of 30 stocks was 1.8 percent higher at 1,482.26.

Food, Tariffs

Russia, the only major emerging economy to raise interest rates this year, is struggling to keep a lid on prices after droughts in the U.S. and locally drove up food costs. The government’s top priority is fighting inflation, even at the expense of short-term growth, President Vladimir Putin said Oct. 2 at an investment conference in Moscow.

Consumer prices rose 6.6 percent in September from a year earlier, led by the cost of bread, meat and alcohol, exceeding the median forecast of 6.5 percent in a Bloomberg survey, the Federal Statistics Service said yesterday.

“The acceleration of inflation in recent months is linked primarily to the pace of growth of food costs and increases in regulated prices and tariffs,” Bank Rossii said in the statement. Lending growth and low unemployment “create the conditions to support stable domestic demand.”